Most of the food items you receive from suppliers are packed and priced using wholesale bulk sizes—crates, cases, bags or cartons. However, in kitchen production, the quantity in the package may be used for several different menu items.
In order to allocate the proper prices to the recipes you're preparing, it's necessary to convert the price of the purchase package into unit prices—price per pound, each, dozen, quart, etc. Applying the cost-per-unit formula is integral to a successful operation. If you don't calculate these formulas, you won't be able to properly estimate the cost of menu items in your kitchen. And ultimately, you won't be able to arrive at a selling price that will offer you a reasonable profit.
The following formulas and tips will assist you and your staff in determining the total costs of the dishes you serve.
Determining Food Cost Control
The price paid for goods is the as-purchased cost. Products, however, are purchased in many units. Therefore, it's necessary to determine the cost per unit (per smaller unit contained in the larger unit) to achieve the cost of an ingredient in a particular recipe.
Cost per Unit: As-purchased cost / number of units
Example: The cost of a case of canned Italian plum tomatoes is $18.78 and there are 6 cans in the case. The price per can is as follows:
Cost per Portion / Selling Price: $18.78 / 6 = $3.13
From this information, you can calculate the price per can (per item). And, with the two values, price per can and the amount needed for the recipe can be calculated.
Example: Cost per unit
Supplier 1: Cost on a case of canned chickpeas is $9.29 and there are 16 (16 ounce) cans in the case. The price per can is as follows:
Cost per portion / selling price:
$9.29 / 16 = $0.58
Supplier 2: Cost on a case of canned chickpeas is $12.29 and there are 24 (16 ounce) cans in the case. The price per can is as follows:
Cost per portion / selling price:
$12.29 / 24 = $0.51
It may not have been apparent at first, but as you can see, quality being equal, there is a cost-savings when dealing with supplier No. 2 on your chickpea orders. Depending upon your usage of this item, this could translate into a significant savings over the course of one year.
Total Cost: Total cost in the foodservice industry is based on how much of a product is used for a particular recipe, not on what is purchased.
Calculating As-Purchased Cost: After the cost per unit has been calculated, the total cost formula needs to be applied to determine how much an ingredient in a particular recipe is costing your operation.
As-purchased cost = Number of units x cost per unit
Example: Your operation's Chicken Tarragon recipe calls for 1 1/2 teaspoons of dried tarragon leaves. One tablespoon of tarragon weighs .08 ounces. Your operation purchases tarragon in 4-ounce jars for $5.77 per jar. How much will the tarragon cost for this particular recipe? To determine the cost of the tarragon, use the "7 Steps of Calculating As-Purchased Cost."
- Determine the quantity you are costing: You need to determine the cost of 1 1/2 teaspoons of tarragon
- Identify the given as-purchased cost information: The purchase price of a jar of tarragon is $5.77
- Select the unit to be used for the as-purchased cost and the quantity (must be the same incremental unit): Both the conversion and the cost are in ounces; ounces will be used to determine the cost
- Perform the calculations necessary to convert the as-purchased cost and/or quantity to the unit chosen in step 3: Use the following formulas to determine the quantity and as-purchased cost
1.5 tsp x 1 tbsp = 1.5 / 3 or .5 tbsp
1 x 3 tsp
.5 tbsp x .08 ounces = .04 ounces
1 x 1 tbsp
As-purchased cost: As-purchased cost / number of units $5.77 / 4 ounces = $1.4425 per ounce
Substitute these numbers into the as-purchased cost formula and multiply to find the as-purchased cost: Use the following formula to find the total cost
Total cost: Number of units / cost per unit .04 ounces x $1.4425 per ounce = $.0577
Round to the next higher increment:
$.0577 rounds up to $.06
Check to insure that your answer is reasonable.